Boom times for debt collectors

Geoff Harper says debt slows the economy. Photo / Janna Dixon

The recession may be over but figures released by transtasman debt collection agency Baycorp show its impact is still hitting profit and loss accounts nationwide.

Debt referred to Baycorp, which holds 35 per cent of the market, has been increasing since mid-2007 and is now at its highest level since 2002.

At the same time, the cash collected from debtors has been on a steady decline since mid-2006 and is now at its lowest level since January 2001.

Fewer than four in 10 people who owe money actually stick to the payments they have promised.

Baycorp chief executive Geoff Harper says: "The willingness to pay is almost unchanged. What has changed is people's ability to pay - this has reduced."

Debtors are more likely to seek a payment arrangement than pay their debt in full, and the average payment has declined 25 per cent. "People are paying less and taking longer to repay," Harper says.

There has been a 49 per cent increase in the average amount owed since 2006, and a marked increase in commercial collection referrals.

Since the downturn gripped, the increase in Baycorp's small to medium-size enterprise (SME) client base has been significant, with summary judgments against debtors up 200 per cent this year as SMEs resort to legal action more often.

Harper says while the climate is good for debt collectors, businesses are rueing the damage slow or non-payers do to bottom lines. And payment defaults do not only affect the creditor.

"There's the flow-on effect to their suppliers - everything just slows down and that worsens the economic impact," Harper says.

SMEs should remember three key things if they offer credit, Harper says. First, poor credit decisions cannot be negated by a collections agency.

Boom times made business people casual about credit management, he says. Weak credit risk policies and poor adherence to them, inadequate terms and conditions and a "she'll be right" attitude contribute to the failure of businesses.

Second, if you doubt an invoice will be paid, get on to it immediately. "By the time 90 days has passed, the business could be insolvent and the doors shut."

Third, the squeaky hinge gets the oil, so make a noise: "Debtors pay those who take action rather than those who threaten action," says Harper.

He cautions businesses against "chasing the sale" in tight times by extending credit.

"A sale is an expense until you get paid, and you can send yourself bust coming out of the recession as easily as you can going into it."

Avoiding debtor pitfalls
* Have a collection policy and include robust credit approval procedures such as credit bureau checks and even personal guarantees.
* Stick rigidly to your credit policy with no or few exceptions.
* Small to medium-size enterprise credit managers should review terms and conditions relating to collecting debt and ensure their paper work is in order. The terms and conditions should specify that the debtor will pay for collection costs.
* If you're in a business that relies on a few customers, you should make it a priority to get to know them and even ask for security for major exposures.